Is it Risk? Explaining Deviations from Uncovered Interest Parity

37 Pages Posted: 6 Apr 2007 Last revised: 11 Jul 2010

See all articles by Robert E. Cumby

Robert E. Cumby

Georgetown University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: September 1987


This paper analyzes ex-ante returns to forward speculation and asks if these returns can be explained by models of a foreign exchange risk premium. After presenting evidence that both nominal and real expected speculative profits are non-zero, the paper examines if real returns to forward speculation are consistent with consumption-based models of risk premia. Estimates of the conditional covariance between real speculative returns and real consumption growth are presented and, like ex-ante returns to forward speculation, they exhibit statistically significant fluctuations over time and often change sign.

Suggested Citation

Cumby, Robert E., Is it Risk? Explaining Deviations from Uncovered Interest Parity (September 1987). NBER Working Paper No. w2380. Available at SSRN:

Robert E. Cumby (Contact Author)

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